BOSTON, MARCH 13, 2012 —With the Supreme Court scheduled to hear oral arguments this month in an unprecedented lawsuit brought by 26 state Attorneys General challenging the 2010 Patient Protection and Affordable Care Act, a new book proposes that the states take the lead in health-care reform, as Massachusetts did in 2006, and that Washington facilitate the transition, rather than try to dictate every move.

According to this new release, the Massachusetts reform plan – which has won both praise and criticism for Republican presidential frontrunner Mitt Romney, (who was governor when the law was passed) – is not the answer for other states. Nor is it fair to label the Massachusetts law ?Romneycare,? since the Massachusetts law has been implemented in a way that is significantly different from what then-Governor Romney proposed.

“While some say the Massachusetts law was used as a national model applied to all states in the Affordable Care Act, the Bay State’s experience underscores how important it is for states to take the lead in health care reform,” said Jim Stergios, executive director of Pioneer Institute in Boston, which published the book. “Our law was crafted with local factors in mind, such as our unique demographics, care preferences, marketplace, and world-class medical institutions. These factors will differ from state to state.”

In a detailed analysis of the Massachusetts reform plan, which was passed in 2006, “The Great Experiment: The States, The Feds and Your Healthcare” points out that the Massachusetts law is a far cry from the original proposal laid out by Governor Romney. Key provisions were enacted over Governor Romney’s veto and most implementation decisions have been made by political appointees of his successor, Governor Deval Patrick, in ways that conflict with Romney’s original vision.

“The Massachusetts law has been successful in some respects, has shown weaknesses
elsewhere, and the impact is still unclear in other areas. The torrent of uninformed opinions for and against Massachusetts’ reform do not match reality and are not helpful for the country,” Joshua Archambault, director of health care policy at the Pioneer Institute said. “The truth is that Massachusetts tried to tackle a very tough issue; federal law should never be built on the experiences – in this case very preliminary experiences – of a single state that makes up barely 2 percent of the national population.”

“Instead of rushing headlong into national legislation that attempts to redesign one-sixth of the U.S. economy,” Stergios said, “Washington should have waited for Massachusetts’ results, and should have encouraged other states to experiment at the same time, using federal resources to compare results and showcase best practices. That is what our book now proposes: that we cautiously step back, encourage the states to design reforms that meet their specific needs, and let the market sort things out.”

THE WAY FORWARD: COMPETITIVE FEDERALISM

The Great Experiment is the work of national health care experts Tom Miller of
American Enterprise Institute, Jim Capretta of the Ethics and Public Policy Center, Amy Lischko of Tufts University School of Medicine, reporter Jennifer Powell, and Joshua Archambault of the Pioneer Institute. Harvard Medical School Dean Dr. Jeffrey Flier contributed the introduction.

Regardless of the fate of the Affordable Care Act, the authors write, the states will need to move ahead. In doing so, the book proposes a combined federal-state effort, which the authors call ?competitive federalism.? Attacking the problems in this manner would encourage flexibility and different approaches – the most successful of which could be adapted and improved by other states.

“The American health care sector needs the discipline, balance and accountability that come from a functional marketplace,? writes co-author Jim Capretta, former associate director of the White House Office of Management and Budget (OMB), where he was responsible for health care. “It also needs effective oversight and governance. And that can come only from a system that respects federalism, with each level of government carrying out its constitutionally appointed role.”

Editor and co-author Joshua Archambault added, ?If each level of government plays its proper role, reforms can keep coverage and the quality of care high, while reining inspiraling cost increases.”

FIXING A BROKEN SYSTEM
This Pioneer Institute book attributes the long-standing problems with the U.S. health care system to “economic dysfunction” in the health care market.

Two factors are credited: 1) the current employer-based insurance system, and 2) the establishment and subsequent expansion of Medicare and Medicaid.
Making heath benefits tax-free to avoid wage controls during World War II might have seemed an innocent loophole at the time, the authors maintain, but the codification of this rule made it prohibitively expensive for Americans to buy coverage on their own – coverage that may suit them better than their employer-provided benefits. In addition, larger employers’ health benefits are structured in such a manner to be exempt from state regulations governing health care. This has made it difficult for states to mount serious system-wide reforms.

According to this publication, Medicare and Medicaid made the situation worse. Over time, both have become enormously popular with beneficiaries and their expanded influence – in the form of longer and more detailed regulations with each passing year.

“Hospitals and physicians have organized themselves entirely around Medicare’s rules, with virtually no input from state governments,” Archambault says.
The authors identify three key elements necessary for a competitive federalist solution: a refundable tax credit for health insurance purchases, the creation of state administered high-risk pools, and Medicaid block grants. The new system, the authors suggest, would work as follows:

Refundable tax credit
The federal government should:

Convert the current tax preference for employer-paid premiums into a refundable tax credit, starting with workers in small firms and individuals who currently don’t have stable employer-based health plans; and

Require that insurers offering coverage to tax-credit-eligible families and individuals set an upper limit on the consumers’ financial exposure to health expenses.

At the same time, states should administer the refundable tax credits, determining or establishing

What health benefits, if any, to require in the benefit packages offered by insurers selling to tax-credit-eligible consumers;

The manner by which the state’s citizens would sign up for insurance coverage, and the benefit information that would be available to them to help them make informed decisions; and

Risk adjustment system(s) among private insurers so they share the burden of covering the state’s sickest patients.

High-risk pools

The federal government should finance – in the form of capped annual appropriations –state-administered high-risk pools, to protect those with pre-existing conditions.

Within a federal framework, states should set ?guardrails? for people transitioning from employer-based insurance to the individual market. One option would be to cap premiums for high-risk enrollees so they can maintain continuous insurance coverage. In doing so, states should be given wide latitude to determine eligibility and have the authority to penalize insurers that push enrollees who are not truly high-risk into the publicly subsidized high-risk pools.

Medicaid Reform

The federal government should convert the federal portion of the Medicaid program into a per capita block grant.

States should support the non-elderly/non-disabled poor, but ?mainstream them? into private insurance options, with premium support based on need. Using their authority to regulate benefits, premium assistance, and other features of the insurance market, states could extend a specially designed refundable tax credit to serve Medicaid- eligible individuals as well. Enrollees would be allowed to choose among competing plans representing different service models, but would face additional costs if they choose to enroll in more expensive plans.

MASSACHUSETTS REFORMS EVALUATED

The Pioneer Institute book examines how the Massachusetts law, which former Governor Romney has been forced to defend against conservative critics on the campaign trail, took shape and how it was implemented by Romney’s successor, Gov. Deval Patrick – who took office just eight months after the legislation was signed into law. The book also examines how well the law has performed.

In this regard, Archambault and co-author Amy Lischko, associate professor at Tufts University School of Medicine and a Pioneer Institute senior fellow, have been issuing interim report cards since 2010. “Only now, six years after its passage, are we starting to get a clearer and fuller picture of the Massachusetts law’s strengths and shortcomings,” Lischko and Archambault write. But “there remain many unanswered questions, and in a few areas, sparse data.”

If the measure of success is the number of uninsured, the plan has worked, with the
percentage of uninsured Massachusetts residents dropping from 9.6 percent in 2006, the year the law passed [compared to 15.2 percent nationally that year] to 4.3 percent in 2009 and 5.6 percent in 2010 [compared to 16.3 percent nationally].

In other areas, expected benefits have not materialized. More individuals than anticipated continue to seek routine care from emergency rooms, rather than primary-care physicians, Lischko and Archambault find. And the past two years have seen a reversal of the previous downward trend in money spent on uncompensated charity care for the remaining uninsured.

Spending on the programs and entities created by the law has increased from $1.3 billion in 2007, the first full year of the reforms, to $1.96 billion in 2010, and an estimated $2.1 billion last year. However due to additional federal stimulus money, the state’s share has averaged around 18% of the cost for the last 5 years.

Insurance premium costs since the law passed have varied. As a direct result of the law, most individuals who purchase insurance on their own saw an initial decrease in premiums. Yet employees covered by employer-sponsored insurance, only indirectly impacted by the law, generally have seen premiums continue to rise, tracking national increases.

Lischko and Archambault find mixed results on improving access to care as well. Prior to reform, 88 percent of adults reported having a primary care doctor. In 2010, that number was virtually unchanged, at 89 percent. However, the percentage of adults over 50 receiving preventive screening, such as a colonoscopy or sigmoidoscopy, has increased 14 percent since the law passed.

MARKET-BASED REFORMS FADE AFTER ROMNEY
While it may be too early to reach conclusions on the effectiveness and cost efficiency of the Massachusetts reforms, Lischko and Archambault say, one thing is abundantly clear: “As the Patrick administration put its own stamp on the reform, the market-based aspects of the legislation were given low priority.? And ?Over time, the organizing principle of health care reform moved away from consumers and small business owners toward the subsidized products offered by the Commonwealth Health Insurance Connector Authority [the agency
established to administer the law].”

Lischko and Archambault argue that ?Understanding the Massachusetts law is as much about the implementation, if not more so, than the original law itself.? They argue that while common ground was found on a number of policy fronts, significant ideological differences have led to the implementation of a reform that was very different from what the Romney administration envisioned.

For example, while most stakeholders supported a personal mandate requiring all state residents to have insurance, the Connector was given the power to decide on the minimum level of coverage that would be required. Romney had favored a very limited mandate, with catastrophic coverage alone meeting the requirement and most other choices left up to the individual. The Connector, however, has steadily expanded the requirements, mandating more-comprehensive coverage, such as prescription drugs.

The law also called for employers to make a ?fair and reasonable? contribution toward their employees’ health care. Most employers expected to have a significant amount of flexibility in fulfilling this requirement. Instead the authors claim, the requirements have become more and more burdensome over the last five years. Small businesses, which don’t enjoy many of the exemptions that larger, self-insured companies do, have been hit particularly hard.

CONCLUSION
“Despite years of effort, and mountains of regulations, the federal government has proven incapable of screening for quality, and acting on that information,” concludes Pioneer Institute Executive Director Jim Stergios. “It is time for states and the federal government to hit the reset button.”

“A functioning marketplace cannot be established unless the states and the federal
government are working in concert to achieve it, and taking the steps that they alone, are best suited to perform,” Archambault adds. With a robust federal-state partnership, the authors say, Americans will get a more affordable and more patient-focused health system, with high-quality care, predictable expenses, and the ability for consumers to make independent choices.